The Grade Acommercial office market in the Delhi National Capital Region (NCR) attracted an increase in demand for office space, with rental values rising across select established micro-markets during the quarter ended June 2014.Delhi NCR is largely a leasing market that saw sustained demand for quality space in the prime office locations of Connaught Place, parts of South Delhi, and Gurgaon. Over the last few quarters, barring the Noida office market, a key challenge facing the region has been a lack of quality options in key office districts, especially in Gurgaon. The region saw a 2% increase in q-o-q investment-grade office space absorption rates in the second quarter over Q1 2014.
The peripheral micro-market of Gurgaon witnessed strong demand for Grade A office space during the second quarter. Although the region saw supply addition in the commercial segment, demand for Grade A office space in prime locations remained unmet. Owing to increased occupier interest, rentals of select IT developments appreciated in the range of 3–5% over the previous quarter. In addition, rental values also increased by around 3–6% for commercial developments along Golf Course Road and Golf Course Extension Road on a q-o-q basis; while remaining stable for the SEZ segment. Noida also attracted a marginal increase in demand for Grade A office space during Q2 2014. Leasing activity continued to be concentrated in the IT/SEZ segment; and the micro-market did not see any new supply addition in the second quarter. Rental values across IT and commercial segments in Noida remained stable over the first quarter.
In a scenario where Gurgaon has been the preferred destination of corporate activity in the region, for both front and back office spaces, the current quality supply crunch at prime locations has been forcing corporate occupiers to reconsider their expansion and/or consolidation plans in the region. Alternate micro-market options today include the emerging areas towards New Gurgaon (10–15 km away from Gurgaon’s key office district) and Noida, which incidentally offer enough supply at more reasonable rentals. Now whether companies choose to move to Noida and/or New Gurgaon for their office space requirements is something that we shall have to wait and watch for over the next few quarters.
The NCR’s Secondary Business District of Nehru Place, Saket and Jasolasaw an increase in absorption levels, attracting demand from corporate occupiers from sectors such as banking/financial services, engineering, logistics, and automobiles, among others. Rising demand levels and the completion of a prominent development at Aerocity led to a marginal increase in vacancy levels. Rental values remained largely stable across all micro-markets in Q2 2014 over the previous quarter.
As far as Connaught Place is concerned, CBRE’s India Office Market View for Q2 2014 felt that the market will continue to sustain demand for small format office spaces for companies that need to be in proximity to the central government and its decision making process. According to CBRE’s latest global report on Prime Office Occupancy Costs for Q1 2014, average occupancy cost for Grade A space at Connaught Place was ranked as the eighth-most expensive in the world at more than INR 750/sq. ft. /month (on net floor area). Space here is highly sought after because of its central location and connectivity with the rest of the city. Occupiers from the banking/financial services and manufacturing segments dominated leasing activity in the micro-market, and vacancy levels reduced marginally during Q2 2014. Steady demand levels also resulted in a marginal rental appreciation of about 1–2% for Grade A developments during the period. Given the limited supply of prime space, rental rates remain high. Going forward, rental values in the micro-market are expected to remain buoyant in the short to medium term.
On the whole, office space rentals in the NCR are expected to remain stable, with a gradual tendency to rise northwards. Rentals in Gurgaon will remain fairly strong, with anticipations of further increases due to robust occupier demand in the face of a lack of quality space in prime areas. Rental values in Noida, on the other hand, are unlikely to see upward fluctuations for the next few quarters. In case of a significant demand overflow from Gurgaon, however,the trend could change.
Demand for prime office space in the NCR continues to be focused on the peripheral micro-markets owing to the abundant availability of cost-effective space. In the short to medium term, we can expect rentals in key markets to either remain stable or accelerate slightly. Overall, the prime office market across India’s key cities witnessed a recovery in Q2 2014, with over 14 million sq. ft. of investment-grade office space being absorbed within the first half of the year